For those of you who would prefer to listen:
It’s Labor Day weekend. This marks the unofficial end of Summer. Activities have concluded. Kids are mostly back in school. Neighborhoods are seemingly quieter during the day. Parents are no doubt facing those bigger bills. It’s a total bummer for some. Others might be rejoicing in getting their lives back, of sorts. This weekend is the final push to spend time at the beach or the lake. It’s the last hurrah. September brings a new mindset. The weather starts to turn. The year-end rush is about to begin.
Labor Day became a Federal Holiday in 1894. Congress declared the first Monday in September to be a day to honor our nation’s workers in acknowledgment of their contributions to the well-being of the country. It’s fitting that the monthly job report was released on Friday, ahead of the Labor Day weekend. The one area that has been super strong in America all year has been the Labor Market. Unemployment has remained near 5-decade lows, contributing to higher wages. That, in turn, has helped keep inflation elevated. The widely anticipated recession has not happened in 2023. People kept spending. America’s Economy won’t recess with unemployment at 50-year lows.
187K jobs were created in August. That beat the Street estimates of 170K. That’s impressive. But there were some cracks in the report. June and July weren’t as strong as previously thought. Both months saw big downward revisions. June was revised down by 80K jobs to 108K. July was revised down 30K to 157K. Those are material changes. It suggests the Economy is definitely cooling. What’s more, the unemployment rate rose to 3.8% from the prior 3.5%, which has marked that 5-decade low.
Also, a tell, the participation rate rose 0.2% to 62.8%. That’s the highest since the pandemic set in. It had been 62.6% every month since March of this year. It bottomed at 60% at the height of Covid. This might seem like a small increase, but keep in mind, those decimal points still represent big numbers. The labor participation rate has seen a steady decline in the 21st century since peaking above 67% in the year 2000. Retiring baby boomers and more Americans taking early retirement explains the trend. The prime-age (ages 25-54) participation rate has remained near 81%. It’s actually higher than pre-pandemic levels.
The Market has been watching all of this. Treasury yields went haywire in August. They spiked to multi-year highs to start the month, which put a serious dent in the Stock Market. It was a correction that was way overdue. But by mid-month, yields started sliding as economic activity cooled. That provided some reprieve for the stock selling, which brought a bit of a rally to close out August.
You know who else has been watching the economic data? You guessed it: The Fed. In its effort to squash inflation by jacking up interest rates, the Fed has wanted to see job creation slow. The imbalance between labor demand and supply has kept wages elevated. The batch of data this week showed just what the Fed wanted to see: slowing labor demand. The JOLTS report, short for Job Openings and Labor Turnover Survey, also revealed the number of job openings in July unexpectedly fell to the lowest level since early 2021. Things are slowing. It’s not necessarily good for the Economy, because consumption is showing signs of peaking too. But it will sure help in the fight with inflation, which could result in a suspension of the Fed rate hikes, which is what the Market seems to care about most. The Market is now assigning just a 7% probability of another rate hike at the Fed September meeting. It was 20% a week ago.
Digging even deeper within yields and rates, an interesting thing happened Friday. The Yield-Curve steepened. To be sure, it remains inverted. But it’s not nearly as extreme as it once was. The front-end of the curve is falling, driven by the expectations the Fed rate hikes are coming to an end. But the back-end of the curve is climbing again. That influences car loans and mortgages, which is what people borrow for most. The price of money is as expensive as it’s been in years. That tends to choke off growth. That also has a history of putting a dent in stock prices.
Another thing that’s been rising of late has been the price of Oil. West Texas Intermediate is back to $85 a barrel. Gas prices follow crude. The price at the pump is up 7% since Memorial Day. It usually declines over the Summer, by an average of 4%. The average price of a gallon of gas across the country is $3.83. It’s the highest price for gas ever heading into Labor Day. As we know well, those prices are much higher in California. The average price for regular unleaded is $5.29 per gallon. It’s jumped 40 cents in a month. That’s likely no surprise to many of you. Stating the obvious, higher prices at the pump suck money away from other places to spend.
The Revenge Tour is coming to an end. After an extended period of lockdowns, Americans exploded with enthusiasm to get out and about. Travel was a massive theme. The burst of traffic that flew the friendly skies and flocked to bars, restaurants, ballparks and concerts was referred to as the Revenge Tour. TSA reported that 227.5 Million passengers traveled through airports on American soil since Memorial Day weekend. That translates to an average of 2.5 Million per day. The largest number of passengers ever recorded came over the 4th of July weekend. Travel has since slowed. But it’s definitely not over yet. Labor Day is expected to be busy from coast to coast. TSA expects over 14 Million passengers this weekend, despite disruptions caused by this week’s storm. The busiest day is expected to be today, Friday, September 1st. TSA expects to screen more than 2.7 Million travelers passing through security checkpoints by the end of today. That would mark a 10% increase from last year. And last year already exceeded 2019 Labor Day weekend. In case you’re wondering, 2.88 Million is the record set on Friday, June 30th of this year, ahead of the long Independence Day weekend.
Where are people going, you might ask? Well, international travel has been a huge theme in 2023 and it will continue Labor Day weekend. Vancouver, Rome, London, Dublin, and Paris are expected to be the top 5 destinations outside the US over this Labor Day weekend, according to AAA. Hotels and cruises pretty much everywhere are seeing a big boost in business. International hotel bookings are up a whopping 80% compared to last year. International cruise bookings increased 44%. Here at home, the top 5 destinations are Seattle, Orlando, Anchorage, New York, and Las Vegas. Alaskan cruises are high on the list for this weekend.
The Stock Market closed out the month of August with a bang after a tough start. Corrective price action is always healthy to keep things in check. September started with a celebratory rally off the Job Report, though those early gains got burned off quite a bit by the close. The Market still seems to be pricing in a soft-landing for the US Economy and continued cooling inflation, which would allow the Fed to pause its aggressive rate hike campaign. Higher Oil prices and low unemployment would mean rates would still stay high. September is seasonally the worst month for stocks and the Market has a history of prematurely pricing in the Fed. Besides, there’s also the growing risk of another government shutdown at the end of the month. We expect the choppy price action to continue.
Be careful out there. Labor Day weekend is the most dangerous Summer holiday and the second most dangerous holiday overall for driving. Saturdays are the most dangerous day of the holiday weekend for driving, and each day between 8 pm and 2 am are the most dangerous hours to drive.
Have a nice weekend. The Market will be closed on Monday in observance of Labor Day. Our office will be closed too. We’ll be back, dark and early on Tuesday.
Mike
